Industry reports and promotional materials make ERP sound like manna-for-business, dropped down from the heavens above. They say that ERP can make your business more efficient, responsive, integrated, transparent, profitable, productive… and the list goes on. What you really want to know, though, is how ERP can help your business. What’s the catch?
Let’s talk about two catches. The first: ERP doesn’t make your business better. It can’t. It’s only software. What it can do, though, is give your business the potential to become better. Filling this potential doesn’t happen by merely installing the software. Rather, it happens by installing the software and restructuring the business. The idea behind restructuring is that operations need to be cleaned up and primed for automation. Restructuring often involves reengineering business processes, re-jigging reporting structures, learning new systems and managing change. These are many of the reasons why implementation projects are so grinding. Once ERP is implemented, though, business performance can really improve.
The second catch is that ERP implementations are risky and expensive. Depending on the study you read, you’ll learn that 40 percent and 70 percent of all implementations fail. With the total cost of ERP ownership for small to medium sized businesses ranging between $150,000 and $2 million (over a 10-year period), the high failure rates don’t encourage investment. The good news is that good project management can drive almost any ERP project to success.
So, how exactly does ERP enable business improvements? For one, ERP integrates business electronically. It does this by using a central database as a repository for information originating in far-reaching corners of the business. An airport hub-and-spoke model is a good way to analogize the ERP model. The central database acts as an informational hub. The various application modules represent the spokes. Each of the modules supports a particular business activity, such as: finance, supply chain, planning, manufacturing operations, and HR (among many others). Electronic data originates at the module level, is validated for overall consistency and gets deposited in the database for storage. Once deposited, users of the different modules can access, combine, manipulate and analyse the deposited data.
This repository of business data can really enhance a business’ ability to plan and forecast. One of our Canadian aerospace clients implemented analytics to help it take advantage of its vast library of data. As one example, this client used analytics to help it understand and respond to volatile market shifts. In so doing, it uncovered relationships between inventories and booking patterns that it had previously been unaware of. A simple adjustment to its procurement practices helped it shave off significant inventory and warehousing costs.
ERP offers much more than centralized storage. It also allows companies to automate business processes according to pre-defined rules. Such automation reduces administrative costs and times relating to manual process handling.
For example, we automated that aerospace client’s financial reporting and budgeting processes. Automation eliminated most of the manual work and human errors relating to data entry and manipulation in Excel. The finance department’s annual budget preparation time was cut by 75 percent, allowing it to reclaim about 220 hours per year.
Financial management is but one example of an ERP module. Below, we take a closer look at this and other modules:
Financial Management (FM)
Financial management modules can help a company automate many of the costly and time consuming tasks relating to finance and accounting. Examples of tasks that can be automated include:
• Posting transactions to the general ledger
• Preparing the financial statements
• Preparing and adhering to budgets
• Scenario analysis
• Managing accounts receivables, billing and collections
• Managing payables
• Managing multiple currencies and languages
• Administering rules relating to cash and budget management
• Managing compliance with regulatory, tax and other reporting requirements
Manufacturing Operations Management (MOM)
MOM modules extend e-integration to the plant floor. By automating manufacturing operations, businesses can get better insights into overall equipment effectiveness, process efficiency, productivity and performance. Automation can extend to:
• Job costing
• Bills of materials preparation
• Product data management
• Master production scheduling
• Production planning and scheduling
• Capacity requirements planning
• Work order management
• Shop floor control
• Equipment lifecycle monitoring, including scheduled maintenance
Supply Chain Management (SCM)
SCM modules are intended to streamline the flow of materials through an organization’s supply chain. Automation can extend from input procurement all the way to final product delivery; and often includes:
• Forecasting demand
• Master and material requirements planning
• Order management
• Inventory management
• Warehouse management
• Logistics management
Supplier Relationship Management (SRM)
SRM modules are intended to streamline procurement processes by centralizing and automating sourcing practices. Automation includes:
• Supplier evaluation, ratings and approvals
• Contract management
• Catalogue management
Customer Relationship Management
CRM is intended to help drive revenues and reduce the costs of earning those revenues. Automating processes relating to sales and customer management is aimed at enhancing existing client satisfaction and attracting new clients. Automated functionality can include:
• Customer quotes and order processing
• e-account management
• Customer preference tracking
• Flexible pricing
• Customer service scripts
• Searchable knowledge database to facilitate customer support
• Rules for product returns
• Marketing campaign management and lead management
Human Resources Management (HRM a.k.a. HCM)
HRM modules can standardize and automate many of the time-consuming HR administrative tasks. Automated tasks can include
• Employee performance management
• Payroll and benefits administration
• Labour tracking
• Benefits administration
• Recruitment functions, including: electronic resume submission and review
• Training, development and skills management
Using MBA-speak, consultants will often tell you that ERP can offer a “real-time, transparent and holistic views of the enterprise”. What they’re saying, in other words, is that ERP can give you a live view of the business. With standardized and automated processes, ERP can also help your business become more efficient, productive and profitable.
Catch our ERP educational column, printed online the first Monday of every month. Jonathan Gross LL.B., M.B.A., is a lawyer and consultant with Pemeco who specializes in aligning business with IT, selecting IT systems and implementing IT systems. Do you have IT or ERP questions? Feel free to email Jonathan at firstname.lastname@example.org. Also, follow him at http://twitter.com/Pemeco.